SUPPLY CHAIN MANAGEMENT :SUPPLY CHAIN MANAGEMENT


SUPPLY CHAIN :SUPPLY CHAIN What Is the Supply Chain? Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities” and the Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities


THE SUPPLY CHAIN – ANOTHER VIEW :THE SUPPLY CHAIN – ANOTHER VIEW


SUPPLY CHAIN MANAGEMENT :SUPPLY CHAIN MANAGEMENT A set of approaches used to efficiently integrate Suppliers Manufacturers Warehouses Distribution centers So that the product is produced and distributed In the right quantities To the right locations And at the right time System-wide costs are minimized and Service level requirements are satisfied


WHAT IS SCM :WHAT IS SCM Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer The term Supply chain comes from a picture of how organization are linked together as viewed from a particular company.


Formulas for Measuring Supply-Chain Performance :Formulas for Measuring Supply-Chain Performance One of the most commonly used measures in all of operations management is “Inventory Turnover” In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time


Example of Measuring Supply-Chain Performance :Example of Measuring Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean? = $160/$35 = 4.57 Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before.


BULLWHIP EFFECT :BULLWHIP EFFECT The magnification of variability in orders in the supply-chain Order Quantity Time Retailer’s Orders Order Quantity Time Wholesaler’s Orders Order Quantity Time Manufacturer’s Orders A lot of retailers each with little variability in their orders…. …can lead to greater variability for a fewer number of wholesalers, and… …can lead to even greater variability for a single manufacturer.


FACTORS CONTRIBUTING TO THE BULLWHIP :FACTORS CONTRIBUTING TO THE BULLWHIP Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to predicted levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information


WHY IS SCM DIFFICULT :WHY IS SCM DIFFICULT Uncertainty is inherent to every supply chain Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant Minimize internal costs Minimize uncertainty Deal with remaining uncertainty


IMPORTANCE OF SUPPLY CHAIN MANAGEMENT :IMPORTANCE OF SUPPLY CHAIN MANAGEMENT Dealing with uncertain environments – matching supply and demand Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals” IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue Hewlett-Packard and Dell found it difficult to obtain important components for its PC’s from Taiwanese suppliers in 1999 due to a massive earthquake U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998


IMPORTANCE OF SUPPLY CHAIN MANAGEMENT – CONTD… :IMPORTANCE OF SUPPLY CHAIN MANAGEMENT – CONTD… Shorter product life cycles of high-technology products Less opportunity to accumulate historical data on customer demand Wide choice of competing products makes it difficult to predict demand The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners If you don’t do it, your competitor will Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers Availability of SCM technologies on the market Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes


SUPPLY CHAIN MANAGEMENT – KEY ISSUES :SUPPLY CHAIN MANAGEMENT – KEY ISSUES Forecasts are never right Very unlikely that actual demand will exactly equal forecast demand The longer the forecast horizon, the worse the forecast A forecast for a year from now will never be as accurate as a forecast for 3 months from now Aggregate forecasts are more accurate A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty


SUPPLY CHAIN MANAGEMENT – KEY ISSUES :SUPPLY CHAIN MANAGEMENT – KEY ISSUES Overcoming functional silos with conflicting goals


SUPPLY CHAIN MANAGEMENT – KEY ISSUES :SUPPLY CHAIN MANAGEMENT – KEY ISSUES


SCM - The Five Core Disciplines For TopPerformance :SCM - The Five Core Disciplines For TopPerformance View Your Supply Chain as a Strategic Asset Develop an End-to-End Process Architecture Design Your Organization for Performance Build the Right Collaborative Model Use Metrics to Drive Business Success


View Your Supply Chain as a Strategic Asset :View Your Supply Chain as a Strategic Asset Five key configuration components Operations strategy Channel strategy Outsourcing strategy Customer service strategy Asset network Four criteria of a good supply chain strategy Align with your business strategy Competing on cost, innovation, quality or service? Align with your customers’ needs Multiple segments, multiple supply chains? Align with your power position Become adaptive


Develop an End-to-End Process Architecture :Develop an End-to-End Process Architecture Four tests of supply chain architecture Strategic fit (strategy drives architecture) End-to-end focus Simplicity Supply chain configuration Product and service proliferation Process and systems inconsistency Over-automation Integrity (integration of applications and processes, data quality) Architectural toolkits and an introduction to SCOR Five processes of end-to-end supply chain management Plan Source Make Deliver Return


Design Your Organization for Performance :Design Your Organization for Performance Organizational change is an ongoing process Evolution of the supply chain organization What’s in a name? Guiding principles for organizational design Form follows function (organisation mirrors process) Every process requires accountability RACI Know and grow your core What must you be really good at? Gaining respect for the supply chain discipline Focus on the skills you need


Build the Right Collaborative Model :Build the Right Collaborative Model Collaboration is a spectrum Transactional collaboration Cooperative collaboration Coordinated collaboration Synchronized collaboration Finding the right place on the spectrum The path to successful collaboration Master internal collaboration first Define the appropriate degrees of collaboration—i.e., segment Share benefits, gains, and losses An example of mutual gain Trust your partners, but protect your interests Use technology to support your collaborative relationships Don’t forget to compromise


The Collaboration Spectrum :The Collaboration Spectrum


Use Metrics to Drive Business Success :Use Metrics to Drive Business Success Why measure? Managing performance with metrics Link your metrics to your business strategy Make sure your metrics are balanced and comprehensive Base performance targets on both internal and external metrics Set aggressive but achievable targets—and tie them to actions Make your metrics highly visible and monitor them at all levels Use your metrics to drive continuous improvement Develop an implementation plan Which metrics? Choose metrics that support your strategy Measure yourself as your customers measure you


Final Thoughts... :Final Thoughts... On achieving performance “There is a strong correlation between supply chain maturity and superior performance” “Supply chain performance is all about integration— integration of strategy, processes, organization, and information systems” On information systems Next-generation supply chain tools will emphasize collaboration and information availability more than speed and efficiency and support three fundamental characteristics: transparency, flexibility, and simultaneity


Final Thoughts...Contd.. :On making change happen “Making change happen—given the complexity of the supply chain and the hundreds of potential practices and competing priorities—requires a multi-dimensional plan—a roadmap to take you from where you are to where you want to be “On the next generation supply chain” “As technologies continue to evolve and supply chain practitioners become more comfortable with their effectiveness, strategies, processes, and organizational capabilities will evolve in parallel” “The next-generation supply chain emphasizes the value of information and the ability to make real-time decisions far more than change” Final Thoughts...Contd..


THANK YOU :THANK YOU